Monday Morning Reads

Monday Morning Reads








Earnings season kicks into high gear

Traders are preparing for the busiest week of earnings season, which will include reports from some of the largest tech companies, and the excitement is palpable. Nasdaq futures climbed 1% to lead gains overnight, while the S&P 500 and Dow Jones rose 0.4% and 0.1%, respectively. Don't forget about the aggressive stimulus being pursued by the new Biden administration, which may look to pass a $1.9T package on its own this week if bipartisan support proves to difficult.

Snapshot: More than a fifth of the S&P 500 are expected to provide quarterly updates over the next five sessions, shedding light on how businesses performed as coronavirus cases rose at the end of 2020. The mega-caps are headlining the busy earnings week, and share prices are bound to respond. For the first time ever, Apple's quarterly sales are expected to cross $100B and Microsoft is projected to pass $40B, while Tesla is set to post its sixth consecutive quarterly profit and metrics like ad revenue growth and MAUs will be on watch at Facebook. Premarket movement: AAPL +2.3%MSFT +1.8%,TSLA +1.7%FB +1.7%.

Don't forget about other sectors. Investors will size up results at telecom firms Verizon (VZ) and AT&T (T), food companies like McDonald's (MCD) and Starbucks (SBUX), payment giants Mastercard (MA) and Visa (V), as well as industrial heavyweights like Honeywell (HON), GE (GE), Caterpillar (CAT) and Boeing (BA). S&P 500 earnings are on track to fall 4.7% year over year for the quarter, according to FactSet, but corporate guidance and forecasts will make all the difference, with profits set to rebound 24% over 2021.

Go deeper: Ahead of the reports, options activity has been continuing at a breakneck pace, building on last year's record volumes. Bullish call options trading surged to a high on Jan. 14, with about 32M contracts changing hands, according to Trade Alert, and Apple and Tesla were among the most popular bets. "This is the most popular I've seen call buying in my career," said Jon Cherry, global head of options at Northern Trust Capital Markets. "Where I think that is really driving from is kind of the melt-up that we've seen in broader markets." (7 comments)

China passes U.S. as top destination for foreign investment

Global foreign direct investment (FDI) collapsed in 2020, falling by 42% to an estimated $859B, from $1.5T in 2019. In fact, FDI finished 2020 more than 30% below the trough after the global financial crisis in 2009, according to the United Nations Conference on Trade and Development, while further weakness is expected in 2021. The economic measure accounts for investments made by businesses in other countries, such as the construction of a factory, an acquisition of a local company or the opening of a satellite office.

Bigger picture: As the coronavirus upended the global economy, China became the largest FDI recipient, attracting an estimated $163B in inflows, followed by the U.S. with $134B. The country was also the only major economy not to contract in 2020 due to a strict centralized lockdown that reportedly contained COVID-19. The economic numbers suggest another acceleration in China's share of global trade and its position as the world's factory floor.

FDI examples: Walmart (WMT) announced it would invest 3B yuan ($460M) in Wuhan, the city that was the first center of the pandemic, over the next five years, while Starbucks (SBUX) is spending $150M on an innovation park in the eastern Chinese city of Kunshan. Tesla (TSLA) is also ramping up production at Giga Shanghai, and Walt Disney (DIS) is continuing a big expansion at its Shanghai theme park. Back in December, Goldman Sachs (GS) and JPMorgan (JPM) took full ownership of their Chinese joint venture partner, and earlier this year, PepsiCo (PEP) spent $705M on Be & Cherry, one of China's largest snack brands.

Go deeper: Total stock of foreign investments is still larger in the U.S., but the momentum of FDI has been shifting towards China since 2017. Although the Trump administration urged American companies to leave the country, it also put Chinese investors on notice that U.S. acquisitions would face new scrutiny on national security grounds. The Biden administration will also have to contend with the rise of China, but the sheer size of its consumer market could draw in foreign investments that are betting on the nation's robust economic recovery. (34 comments)

Can't stop addicted to the shindig

The "retail bros" that have propelled stocks like legacy photo giant Kodak (KODK) and bankrupt rental company Hertz (HTZ) to dizzying heights have a new favorite: GameStop (NYSE:GME). Shares of the video game retailer are up another 50% premarket as an epic run and battle between investing (gambling?) forces continues. The stock, which was trading near $20 just two weeks ago, is now set to open near $100.

Backdrop: On Jan. 11, GameStop popped on the investing radar after the company added some new directors to collectively bring deep expertise in e-commerce, online marketing, finance and strategic planning. That included Chewy (CHWY) co-founder Ryan Cohen and two former colleagues after he pushed the company to better focus on digital sales. A battle then ensued between short-selling firm Citron Research and speculative buyers organizing on Reddit's popular WallStreetBets.

Play-by-play: "This is a failing mall-based retailer," Citron's Andrew Left said in a video, but the stock buying just kept going. He later said that buyers at these elevated levels are "the suckers at this poker game," but the traders just doubled down, racking up losses for anyone left holding a short position. In fact, more than 194M shares of GameStop changed hands on Friday, more than eight times its 30-day trading volume average of 23.8M, and triggered four separate trading halts.

While the retail bros might have won the battle, can they win the war?

Kid vaccine trials are underway

Children are less affected by COVID-19 than adults, but they do still catch the virus and can spread it. More than 2.5M cases of coronavirus were reported in children as of Jan. 14, about 13% of all cases, according to a report from the American Academy of Pediatrics and the Children's Hospital Association.

"Children can still get sick and die from COVID-19," said Dr. Paul Offit, director of the Vaccine Education Center and an infectious diseases physician at the Children's Hospital of Philadelphia. "As many children this past year died from COVID-19 as died from influenza. And we recommend an influenza vaccine for children." He also pointed out that kids can suffer from a disease called "multisystem inflammatory syndrome" associated with COVID, "which can be debilitating." There have been 1,659 cases of the syndrome in children, referred to as MIS-C, and 26 deaths as of Jan. 8, according to the CDC.

What's happening? Pfizer (NYSE:PFE) has fully enrolled its COVID-19 vaccine trial in kids ages 12 to 15, which will focus on 2,259 participants and assess safety and efficacy for the group. Moderna (NASDAQ:MRNA) expects data for kids 12 and up may be available before September, but it's unlikely the company would have data in kids age 11 and younger - which would involve a lower dose - before next year. AstraZeneca (NASDAQ:AZN) plans to continue U.K. trials in a new protocol for kids between ages 5 and 18 "beginning in the coming months," while Johnson & Johnson (NYSE:JNJ) is in talks with regulators about including pediatric populations in its development plan.

Looking abroad: Israel has begun vaccinating high-school students (over the age of 16), with Ministry of Health data showing that 10- to 19-year-olds made up 21% of known infections. "They are the megaspreaders," declared Ido Hadari, director of government relations at HMO Maccabi Healthcare Services. Since starting in late December, Israel has led the world's fastest vaccination campaign, so far administering the first dose of Pfizer's vaccine to almost 30% of its population. (89 comments)

Where are the driverless cars?

2020 was supposed to be the year of the self-driving car, with several companies estimating they would have tens of thousands of autonomous vehicles on the road by now, but a big disconnect is being seen between these cars rolling out and the revolution that was promised. What happened?

"It's an extraordinary grind," Waymo (GOOGGOOGL) CEO John Krafcik told the FT. "I would say it's a bigger challenge than launching a rocket and putting it in orbit around the Earth... because it has to be done safely over and over and over again." 99% accuracy is nowhere good enough when talking about a fleet of vehicles, multiplied by thousands of passengers, and some would argue that the companies got way ahead of themselves when it comes to methodology and safety. "We are at a point now where there is more realism than hype," added Mark Gottfredson, a partner at consulting group Bain.

Backdrop: Besides industry leader Waymo, which was last valued at more than $30B, there's been a lot of consolidation since 2016, when Cruise got acquired by General Motors (NYSE:GM). Since then, Argo AI was bought by Volkswagen (OTCPK:OTCPK:VWAGY) and Ford (NYSE:F), Amazon (NASDAQ:AMZN) scooped up Zoox (ZOOX), while Uber's (NYSE:UBER) self-driving car division was absorbed by Aurora. Waymo is still the only company globally to have a driverless ride-hailing service, and while its fleet spans 300 vehicles, it is confined to one area in southeastern Phoenix.

Outlook: Few technologies have the power to reshape cities the way that driverless vehicles do, and Waymo's Krafcik remains steadfast that the technology will disrupt personal car ownership. He also forecasts that children born today will have little reason to get a driver's license. "I can say that with 100% confidence - [They'll] be able use Waymo in just about any place that [they] might be." (5 comments)

What else is happening...

Pfizer (NYSE:PFE) COVID-19 vaccine supply to rise with FDA label change.

Restaurants may face another headwind with Biden minimum wage plan.

TikTok challenger Kuaishou aims to raise $5.4B in Hong Kong IPO.

Job openings suggest Tesla (NASDAQ:TSLA) Semi may be moving closer to production.

Solar to become cheapest form of U.S. power by 2030 - WoodMac.

Today's Markets

In Asia, Japan +0.7%. Hong Kong +2.4%. China -0.5%. India +1.1%.
In Europe, at midday, London -0.3%. Paris -0.3%. Frankfurt -0.1%.
Futures at 6:20, Dow +0.1%. S&P +0.4%. Nasdaq +1%. Crude +1.2% to $52.88. Gold +0.4% at $1863.30. Bitcoin +1.1% to $33187.
Ten-year Treasury Yield flat at 1.08%

Today's Economic Calendar

8:30 Chicago Fed National Activity Index
10:30 Dallas Fed Manufacturing Survey
1:00 PM Results of $60B, 2-Year Note Auctio

Known to most as Uranium Pinto Beans, Jason has more than 15 years under his belt of trading stocks, options and currencies. His expertise primarily lies in chart analysis, and he has a strong eye for undervalued stock. Because he’s got the ability to identify great risk/reward trades he usually enjoys taking the path less traveled and reaping the benefits from the adventure.

He is a co-founder of Option Millionaires, and he is best known for his weekly webinars with Scott, as well as his high level training webinars and charts found in the forums.

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